The Truth About Home Ownership and Reverse Mortgages

In following up with consumers who have visited NewRetirement’s Reverse Mortgage Calculator, it seems that an alarming number of people have a mistaken impression about who owns the home after a Reverse Mortgage has been set up.A Reverse Mortgage can enable you to access extra cash and feel the freedom of owning your home without monthly mortgage payments.
Let this article dispel any confusion on this topic right here and now: If you take out a Reverse Mortgage, your home will, at all times, remain in your name. At no point in doing a Reverse Mortgage will your home-ownership be contested. You own your home when you get a Reverse Mortgage.

A Reverse Mortgage is Simply a Loan (Not a Sale)

A Reverse Mortgage is a loan.

It is different than the mortgages, loans, or lines of credit that you can take out from your bank, but not that different. And, it still a loan.

When you take out a Reverse Mortgage, you are borrowing money against the home. You are not selling the house, you are not signing it over to the bank, you are borrowing money against it, thus placing a lien against your home.

How a Reverse Mortgage is Similar to a Bank Loan

You’ll find that the nature of the loan is similar, in many ways, to the loans offered by your bank.

There are origination fees/closing costs to set up a Reverse Mortgage, and there will be interest that accumulates on whatever funds are borrowed for the duration of the loan.

Likewise, you will be required to maintain property taxes and homeowner’s insurance, and general property upkeep is still your responsibility.

Differences Between a Reverse Mortgage and a Bank Loan

There are, however, two major differences between Reverse Mortgages and other types of home loans.

1) No Monthly Payments While the Loan is in Force: The first difference is that a Reverse Mortgage does not require a monthly mortgage payment from the borrower. (A borrower can make payments if they so choose in order to keep interest down, maintain equity, or even continue building equity in the home depending on their situation.)

However, when you get a Reverse Mortgage, you are by no means required to make monthly loan payments of any kind. (Taxes and insurance on the home must be paid.)

2) Loan is Not Paid Back Until it Comes Due: The second major difference is that there is not exactly a specific repayment time line on a Reverse Mortgage. Usually, when you get a Reverse Mortgage, you don’t know how long you will have the loan — the term.

The bank does not know the term of the loan when they give you the money. They don’t expect the loan to be paid off until the loan comes due.

When Does a Reverse Mortgage Come Due?

A Reverse Mortgage comes due when you no longer occupy your home, meaning the loan does not become due until all titleholders have left the property for good

The loan will come due to one of two circumstances:

1) One possibility for the loan coming due is that you leave the home while you are still living. Maybe at some point you just decide to sell the property and move into something simpler for your needs. Or perhaps, due to your health, you end up having to go into assisted living or move in with a family member on a permanent basis.

Being that the house is still in your name, it is still yours to sell. If you are moving out of a home that has a Reverse Mortgage, you sell the house, use that money to pay off whatever is owed on the Reverse Mortgage and any remaining proceeds from the sale of the home are yours to keep.

2) Another possibility for the loan coming due is that all titleholders who live in the home have died.

In the event of death, the house is passed on to the heirs. At that point, the heir will typically have 6-12 months to decide what to do with the home.

If they would like to maintain ownership of the home, they do have the right to pay off whatever is owed on the Reverse Mortgage independently. If they can’t pay it off independently, they can also look into refinancing however much is owed on the Reverse Mortgage with a different type of home loan.

If the new owner is not in a position to pay the loan off independently or refinance, or if they just have no need for the home, they also have the option to sell. From the sale of the home, the new owner will use that money to pay off whatever is owed on the Reverse Mortgage, and they will retain the difference.

What if You Owe More on the Loan than the Home is Worth?

With a Reverse Mortgage you will never owe more than your home’s value at the time the loan is repaid, even if the Reverse Mortgage lenders have paid you more money than the value of the home. This is a particularly useful advantage if you secure a Reverse Mortgage and then home prices decline.

How Much Can You Get from a Reverse Mortgage Loan?

Studies indicate that more than 90 percent of all households who have secured a Reverse Mortgage are extremely happy that they got the loan. People say that they have less stress and feel freer to live the life they want. And, yes, the fact that they still own their home and are free to live there for as long as they wish — monthly mortgage payment free — can provide a huge sense of relief.